The Effect of Presidents on the Economy

For nearly 40 years I’ve listened to people who have blamed or praised the President of the United States for the state of the economy. I’ve told them over and over again that the President of the United States has little (if any) influence over business cycles.

When Jimmy Carter was President we had double digit inflation. Jimmy didn’t cause that inflation; the Federal Reserve printed too much money. As the Fed tightened the money supply starting in late 1979 the inflation was wrung out of the economy, but in the first two years of the Reagan administration the country was in an inflationary recession (double digit inflation and double digit unemployment). That wasn’t Reagan’s fault, nor should he have gotten credit for the remaining 6 years of prosperity during his administration. The economy was great when Clinton was President and it was booming during most of George W. Bush’s time in office, but this has nothing to do with who occupies the oval office.

Likewise, Obama is not responsible for the mess that we are currently experiencing. Our current problems have been caused mostly by an over extension of credit in the real estate market. In 2003, Democrats in Congress defeated proposals to bring Freddie Mac and Fannie May under tighter regulatory control, mainly to allow their low income constituents to afford housing. You can hang this one on Barney Frank, but not on Barak Obama.

The administration is now proposing another government agency to supervise financial markets, arguing that we need more regulation. Some regulatory reform might be needed, but we don’t need another government agency. The big problem has been that government doesn’t even enforce the laws already on the books. For example, many in Congress now claim that it was difficult to recognize problems that lead to the housing crash. I’m not buying it. All the regulators had to do was turn on a radio and hear some guy hawking “no doc” easy credit home loans. Any moron would have known that this wasn’t going to work; a person with a $60,000 year job simply can’t afford a $500,000 mortgage payment. Congress didn’t do its job. Like anyone who has lost money invested with Bernie Madoff knows, the government doesn’t do anything well; why would we expect anything different from the Securities and Exchange Commission.

While Obama hasn’t caused the current economic crisis, in my opinion he is unknowingly prolonging and exacerbating our misery. Due to the sheer amount of legislative changes he is trying to force through Congress in his first term (cap and trade, health care reform, the TARP banking bailouts, nationalizing General Motors) Obama has created tremendous uncertainty in the US economy. Markets can adjust to bad news, but they remain crippled and dysfunctional when there is too much uncertainty. With Obama we’ve got uncertainty on steroids. Meanwhile the US economy twists in the wind as Obama toys around with the details of his socialist agenda. As Obama’s chief of staff Rahm Emanual once said, “You never want a serious crisis to go to waste.”

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